While India’s IT services sector remains shielded from the latest US tariff hikes, industry experts warn of broader economic ramifications. Experts also stress that India’s IT services sector, a major economic driver with $205.2 billion in exports in FY24, remains resilient, buoyed by strong US-India collaboration and demand for AI, cybersecurity, and enterprise tech solutions. However, reciprocal tariffs may pressure industries reliant on IT spending, prompting businesses to optimise costs and automate processes.

On Wednesday, US President Donald Trump announced 27 per cent reciprocal “Liberation Day” tariffs on India’s exports to the US, effective April 9, 2025, primarily targeting physical goods like electronics, textiles, gems, and jewellery.

Shetal Mehta, Co-Founder of Suchi Semicon, said India’s IT services sector remains unaffected, as the tariffs do not apply to service-based exports. This is significant, since IT services contribute substantially to India’s economy, with software services exports reaching $205.2 billion in FY24. The US remains the largest market, accounting for nearly 70 per cent of India’s IT export revenue.

“India’s IT sector’s resilience stems from its focus on high-skilled labour, digital transformation, and cloud-based solutions rather than traditional manufacturing. With increasing demand for AI, cybersecurity, and enterprise tech solutions in the US, Indian IT firms continue to find growth opportunities. Moreover, the industry benefits from strong US-India collaboration in the technology space, ensuring stable trade ties despite ongoing tariff disputes in other sectors,” he said.

However, in August 2023, the Indian Government announced restrictions on imports of certain information and communications technology products, including laptops, tablets, and servers classified under Harmonized System (HS) heading 8471, appearing to include an import licensing requirement, explained Ashok Chandak, President, India Electronics and Semiconductor Association (IESA).

While the licensing requirements were initially set to take effect immediately, India delayed implementation until November, only to further extend the licensing requirement until December 31, 2025.

US exporters expressed concerns over the lack of prior stakeholder consultations and took a strong objection to this. American companies aspire to export IT hardware, servers, laptops, and tablets to India.

“Compared to Electronics exporters like China, Vietnam, Thailand, and Taiwan, India’s tariff is relatively low at 26 per cent, which should provide some competitive advantage for mobiles and IT hardware. However, Malaysia, Korea, and Japan are at a similar level and could compete with India. Singapore is in a sweet spot with a reciprocal tariff of only 10 per cent. Overall, India can still gain an advantage and improve the cost structure with the new Component PLI scheme, PLI for electronics manufacturing, and the Semicon India program – a winning trio. Considering most major IT hardware players are US-based, they may not eagerly expand manufacturing in India, which will challenge the growth of exports from here.”

He added that India needs to act fast to create operational efficiencies and local value additions riding on the PLI schemes to gain an advantage over other Asian countries in 2-3 years and remain competitive.

Dr Ajai Chowdhry, HCL Founder and the Chairman of EPIC Foundation, noted, “Our IT services and pharmaceutical sectors are fortunate to be exempt from these tariffs. However, globally, the economic impact will undoubtedly be significant. What’s interesting is that we’re poised to gain an edge over Vietnam and China in the electronics sector and will most likely outperform these countries. But we must be vigilant about China’s electronic waste dump and exercise a high level of concern. We do not, at any point of time want to turn into a trading colony of China.”

Alongside, these reciprocal tariffs will impact IT services demand, not supply, Akash Verma, practice director, Everest Group explained. In the short term, sectors like manufacturing, electronics, and parts of retail/CPG will face cost pressures and uncertainty, leading to cuts in non-essential and discretionary IT spending.

In the medium term, businesses will adapt by optimising costs, diversifying suppliers, and increasing automation, ultimately creating new growth opportunities for service providers, he said.

(With inputs from Sindhu Hariharan)

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Published on April 3, 2025